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What’s New in CECL: Key Updates to Financial Instruments – Credit Losses (Topic 326)

In July 2025, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU 2025-05) to improve the guidance on the measurement of credit losses for accounts receivable and contract assets related to ASU 326, Financial Instruments-Credit Losses. The practical expedient may be applied by all entities, and the accounting policy election may be applied by entities other than public business entities.

What are the Main Provisions?

The amendments in this Update provide:

1. All entities with a practical expedient and
2. Entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, as follows:

• Practical expedient. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset.
• Accounting policy election. An entity other than a public business that elects the practical expedient is permitted to make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses.

This new guidance, which is optional, simplifies and primarily impacts the recording of credit losses related to accounts receivable and contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this ASU are expected to reduce the time and effort necessary to estimate credit losses for current accounts receivable and current contract assets. This is achieved by allowing entities to assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the assets, and by permitting consideration of collection activity after the balance sheet date when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606.

The practical expedient additionally allows an entity to make an accounting policy election to consider collection activity that occurs after the balance sheet date but before the financial statements are available to be issued in the estimate of credit losses on current accounts receivable and current contract assets.

This ASU also requires an entity to disclose the use of the practical expedient as well as the accounting policy election, if applicable.

Effective Date and Transition

The ASU is effective for fiscal years beginning after December 15, 2025, and interim reporting periods within those fiscal years. Early adoption is permitted and must apply the practical expedient and, if applicable, the accounting policy election prospectively.

How Centri Can Help

The adoption of ASU 2025-05 introduces optional but impactful changes that simplify the estimation of credit losses for current accounts receivable and contract assets. While the guidance eases the operational burden, it also requires thoughtful documentation and clear disclosures to ensure compliance.

We can assist by:

• Serving as the central point of contact for the working group, ensuring that responsibilities are clearly defined and critical deadlines are met.
• Enhancing existing Credit Loss documentation in a memorandum to align with the existing ASU, as well as the application of the Update.
• Assisting with the preparation of the footnote and its related required disclosures in the financial statements.

At Centri, our team of technical accounting experts has the knowledge and expertise to help your business navigate the new requirements. Contact us to learn more.

Blake Roberts

Partner | Technical Accounting Practice Leader | CPA

Blake is a Partner at Centri Business Consulting and the leader of the firm’s Technical Accounting Practice. He has more than 18 years of public accounting experience. View Blake Roberts's Full Bio

Michael Kirchner

Managing Director | CPA, MBA

Mike is a Managing Director at Centri Business Consulting. He has more than 19 years of accounting, advisory, and audit experience. View Michael Kirchner's Full Bio